We estimate an alternative type of monetary policy rule according to which the central bank targets a discounted infinite sum of expected inflation and output gaps. Empirical results suggest that the Fed has a mean forward horizon of 4 to 8 quarters.

This paper considers a multivariate extension of the test for neglected nonlinearity proposed by Tsay (1986) that uses principal components to overcome the problem of dimensionality that is common with tests of this type. Monte Carlo experiments reveal that the modified multivariate test...